Quick View
| Metric | Current Period | Same Period Last Year | YoY |
|---|---|---|---|
| Revenue | ¥1309.5B | ¥1355.1B | −3.4% |
| Operating Income | ¥206.1B | ¥224.2B | −8.1% |
| Ordinary Income | ¥213.5B | ¥182.6B | +17.0% |
| Net Income | ¥154.8B | ¥135.1B | +14.6% |
| ROE | 2.9% | 2.6% | - |
Executive Summary
Although operating income declined in the quarter, ordinary income and net income increased, indicating that the quality of earnings growth is dependent on non-operating income and expenses. Revenue was ¥1,309.5B, down 3.4% year on year, while operating income was ¥206.1B, down 8.1%. In contrast, ordinary income increased 17.0% to ¥213.5B, and net income increased 14.6% to ¥154.8B. The primary factors were declines in revenue and profit in the core Tire Business, together with an improvement in non-operating income and expenses, including a ¥6.4B foreign exchange gain.
Factors Affecting Business Performance
【Revenue】Consolidated revenue was ¥1,309.5B, down 3.4% year on year. The core Tire Business generated revenue of ¥1,193.3B, down 3.6% year on year and accounting for 91.1% of consolidated revenue, thereby weighing on the overall result. The Automotive Parts Business also reported a decline in revenue to ¥116.2B, down 1.1% year on year. Both segments recorded lower revenue, and weakness in demand and volume directly affected the consolidated top line.
【Profit and Loss】Operating income declined 8.1% year on year to ¥206.1B, with an operating margin of 15.7% versus 16.5% in the same period of the previous year. The primary factor was a decline in operating income in the Tire Business to ¥200.4B, down 8.5% year on year. Meanwhile, the Automotive Parts Business improved, with operating income increasing 11.4% to ¥5.7B and its operating margin reaching 4.9%. Despite the decline at the operating level, non-operating income of ¥13.8B, including a ¥6.4B foreign exchange gain and ¥4.4B in interest income, contributed to a turnaround in ordinary income, which increased 17.0% to ¥213.5B. Although the company recorded extraordinary losses of ¥2.0B, comprising an impairment loss of ¥0.9B and a loss on disposal of property, plant and equipment of ¥1.1B, net income increased 14.6% to ¥154.8B. In conclusion, the company exhibited a composite structure of “revenue decline and operating income decline” alongside “revenue decline and ordinary/net income growth,” rather than a simple “revenue growth and profit decline” pattern. The increase in profit was supported by an improvement in non-operating income and expenses.
Segment Analysis
The Tire Business generated revenue of ¥1,193.3B, down 3.6% year on year, and operating income of ¥200.4B, down 8.5%, for an operating margin of 16.8%. It is the core business, accounting for 97.2% of consolidated segment profit. The Automotive Parts Business reported revenue of ¥116.2B, down 1.1%, while operating income increased 11.4% to ¥5.7B, and its operating margin improved to 4.9%, indicating improved profitability despite lower revenue. Because the Tire Business recorded the larger declines in revenue and profit, the direction of consolidated performance is largely determined by trends in that business.
Key Financial Indicators
【Profitability】The operating margin declined to 15.7% from 16.5% in the same period of the previous year. However, the ordinary income margin improved to 16.3% from 13.5%, while the net income margin improved to 11.8% from 10.0%, indicating a divergence between core operating profitability and bottom-line earnings. The gross margin remained at a high level of 42.6%, while the SG&A ratio increased to 26.8%, putting pressure on the operating margin. 【Cash Quality】Cash and deposits were ¥1,049.4B, down from ¥1,172.6B in the previous year, while accounts receivable of ¥1,196.0B and inventories of ¥1,048.9B indicate a large working capital base. 【Capital Efficiency】Quarterly ROE before annualization was 2.9%. If net income is annualized, the level would be approximately 11.6%, calculated by dividing ¥619.0B, equivalent to the quarterly net income of ¥154.8B multiplied by 4, by period-end net assets of ¥5,327.7B. Total asset turnover remains low, and the capital-intensive business structure constrains ROE. 【Financial Soundness】The equity ratio improved to 72.5% from 69.4% in the previous year, and current assets of ¥3,871.1B substantially exceeded current liabilities of ¥1,196.0B. Interest-bearing debt remained limited to ¥31.01B in long-term borrowings and ¥20.00B in bonds, indicating low financial leverage.
Cash Flow Analysis
As no cash flow statement has been disclosed, funding trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥1,049.4B, down from ¥1,172.6B in the same period of the previous year, suggesting that part of the funds may have been allocated to working capital and capital expenditures. Accounts receivable of ¥1,196.0B and inventories of ¥1,048.9B, of which finished goods inventories accounted for the same amount, remained at high levels. Despite the decline in revenue, inventories increased from ¥920.4B in the previous year, indicating a greater accumulation of funds in working capital. Property, plant and equipment increased to ¥2,836.2B from ¥2,806.8B in the previous year, demonstrating the continuation of capital investment. The low level of interest-bearing debt and the high equity ratio of 72.5% support the view that the company’s financial management does not rely on external funding.
Quality of Earnings
The increase in profit during the quarter requires qualitative caution because it was not driven by improvements in the core business, but rather supported by changes in non-operating income and expenses and the tax burden structure. While operating income decreased 8.1% year on year, ordinary income increased 17.0%; this difference is explained by the increase in non-operating income of ¥13.8B, including a ¥6.4B foreign exchange gain and ¥4.4B in interest income, as well as a decrease in non-operating expenses. Extraordinary income and expenses reduced retained earnings by a net ¥1.6B, but the amount was small and its impact on net income was limited. Comprehensive income was ¥208.9B, exceeding net income of ¥154.8B. The difference was attributable to foreign currency translation adjustments of ¥58.1B, indicating that the yen translation effect from overseas businesses boosted comprehensive income. Accordingly, the increase in ordinary income and net income partly depended on highly non-recurring items, such as foreign exchange and interest factors in non-operating income and expenses. Core earnings power was somewhat weak, as indicated by the decline in the operating margin.
Earnings Forecast and Guidance
The company’s full-year forecast calls for revenue of ¥6,200.0B, up 4.2% year on year; operating income of ¥940.0B, down 3.4%; and ordinary income of ¥820.0B, down 19.1%. The plan anticipates revenue growth but declines in operating income and ordinary income. Q1 progress rates were 21.1% for revenue, 21.9% for operating income, and 26.0% for ordinary income. Operating income progress was slightly below the quarterly benchmark of 25%. Although ordinary income was progressing ahead of schedule, the full-year plan itself assumes a substantial year-on-year decline in profit, and it is uncertain whether the boost from non-operating income during the quarter will persist throughout the full year. No revision to the earnings forecast has been made.
Shareholder Returns
The full-year dividend forecast is ¥135 per share. Based on the weighted-average number of shares outstanding during the period of 153,996 thousand shares, the annual total dividend is estimated at approximately ¥207.9B. The payout ratio against the company’s full-year net income forecast of ¥540.0B is calculated at approximately 38.5%. Q1 net income of ¥154.8B is equivalent to approximately 74% of the annual total dividend, indicating sound earnings coverage. The equity ratio of 72.5% and low level of interest-bearing debt support the company’s financial resilience in maintaining dividends.
Risk Factors
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Decline in revenue and profit in the core Tire Business: The Tire Business accounts for 91.1% of consolidated revenue and 97.2% of segment profit, but revenue declined 3.6% year on year and operating income declined 8.5%. Demand and pricing trends in this business represent a structural risk because they determine consolidated performance.
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Dependence on non-operating income and expenses: Growth in ordinary income and net income was supported by non-operating income, including a ¥6.4B foreign exchange gain, while operating income declined 8.1% year on year. A reversal in foreign exchange trends could affect the sustainability of profit growth.
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Inventory and working capital accumulation: Inventories were ¥1,048.9B, up from ¥920.4B in the previous year, with finished goods inventories accounting for the same amount. Increasing inventories during a period of declining revenue could lead to future price adjustments or production adjustments.
Industry Benchmark (For Reference; Company Analysis)
Profitability and Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 15.7% | 7.2% (3.2%–12.5%) | +8.6pt |
| Net Income Margin | 11.8% | 5.9% (2.9%–12.5%) | +5.9pt |
The company’s profitability substantially exceeds the industry median and is positioned at a high level even within the manufacturing sector.
Growth and Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | −3.4% | 5.6% (1.1%–13.9%) | −9.0pt |
The revenue growth rate was below the industry median, indicating that top-line growth lags the industry despite the company’s high profitability.
※Source: Company compilation
Key Points in the Earnings Results
-
The operating margin of 15.7% is substantially above the industry average, but declined by approximately 80bp year on year, primarily due to lower revenue in the core Tire Business. This warrants attention as a potential turning point in the trend of core operating profitability.
-
Growth in ordinary income and net income was supported by non-operating items such as foreign exchange gains, differing from the decline in operating income. When evaluating the earnings figures, it is necessary to distinguish the factors underlying the divergence between operating income and ordinary/net income.
-
Inventories have increased from the previous year. The balance between demand trends and production and inventory adjustments will be a key point in assessing the future earnings structure.
Theoretical Share Price (Reference Value)
| Scenario | Theoretical Share Price |
|---|---|
| bear | ¥3,545 |
| base | ¥3,649 |
| bull | ¥3,749 |
| Valuation Assumption | Value |
|---|---|
| Book Value per Share (BPS) | ¥3,460 |
| Adjusted Forecast EPS | ¥386.7 |
| Cost of Equity r | 9.27% (10-year government bond 2.77% + equity risk premium 6.00% + size premium 0.50%) |
| Residual Income Persistence Coefficient ω / Explicit Forecast Period | 0.62 / 5 years |
| Assumed Payout Ratio | 38.5% |
| Forecast EPS Confidence Adjustment | ×1.103 (based on the track record of guidance achievement rates for companies in the same industry) |
| Implied PBR / PER | 1.05x / 9.4x |
Sensitivity: ¥3,548–¥3,756 at ±1% for the cost of equity, and ¥3,645–¥3,656 at ±0.1 for ω.
Notes:
- Net assets as of the end of the quarter are used (there is a timing difference relative to the full-year forecast).
- Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.
(Calculation model: Residual Income Model, Ohlson type, with an explicit 5-year fade / Interest rate reference month: 2026-07 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)
This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, and after consulting a professional advisor where appropriate.
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AI Financial Analysis
Executive Summary
FY2026 Q1 was a mixed result: operating momentum softened on lower sales, while ordinary and net income rose sharply on an improved non-operating foreign-exchange result. Revenue declined 3.4% year on year to ¥130.95bn. Operating income fell 8.1% to ¥20.61bn. The operating margin contracted 80bp year on year to 15.7%, although it remained above the 15% excellent-profitability benchmark. Gross profit increased 1.0% to ¥55.73bn despite the sales decline. Consequently, the gross margin expanded by 184bp to 42.6% from 40.7% a year earlier, indicating a favorable product/mix, pricing, or cost-of-sales outcome. However, SG&A expense increased 7.3% to ¥35.12bn while revenue declined, absorbing the gross-margin improvement and creating negative operating leverage. Ordinary income rose 17.0% to ¥21.35bn, and net income increased 14.6% to ¥15.48bn. This below-operating-line recovery was chiefly supported by a ¥6.40bn FX gain, compared with a ¥43.39bn FX loss in the prior-year quarter. Net margin consequently expanded 185bp to 11.8%. The effective tax rate was 27.0%, producing a normal tax burden factor of 0.730. The tire business remained the core earnings engine, contributing 97.2% of consolidated segment operating income. Automotive parts showed a modest earnings improvement despite lower revenue, but its margin remains materially below that of tires. The balance sheet is conservatively capitalized, with a 323.7% current ratio, 0.38x debt-to-equity ratio, and 140.2x interest coverage. Working-capital intensity is the principal operational watchpoint, as receivable, inventory, and cash-conversion-cycle alerts indicate substantial cash tied up in the operating cycle. Full-year guidance implies a return to revenue growth after Q1, while management maintained both earnings and dividend forecasts. Achieving the full-year plan will require a sequential sales recovery and containment of SG&A growth, while the durability of FX support should not be assumed.
Profitability Analysis
Annualized DuPont ROE is 11.6%, comprising an 11.8% net profit margin, 0.713x annualized asset turnover, and 1.38x financial leverage. The result is in the good 10-15% ROE range and is driven principally by a high net margin rather than aggressive balance-sheet leverage. The largest year-on-year profitability swing occurred below operating income: ordinary income increased by ¥3.10bn and net income by ¥1.97bn despite an ¥1.81bn decline in operating income. The main business-level concern is operating leverage: SG&A rose 7.3% while revenue fell 3.4%, reducing the operating margin to 15.7% from 16.5%. Conversely, the 184bp gross-margin expansion demonstrates resilient gross profitability and partially offsets lower volume or sales. The tire segment generated revenue of ¥119.33bn, down 3.6% year on year, and operating income of ¥20.04bn, down 8.5%; its operating margin narrowed 89bp to 16.8%. It is the core business, accounting for 91.1% of revenue and 97.2% of segment operating income. The automotive parts segment generated revenue of ¥11.62bn, down 1.1%, while operating income increased 11.4% to ¥0.57bn; its operating margin improved 54bp to 4.9%. The substantial margin differential confirms that consolidated earnings remain predominantly exposed to tire-market pricing, volume, raw-material costs, manufacturing utilization, and regional demand. Interest burden was favorable at 1.028, reflecting net non-operating interest and FX income in relation to EBIT, while interest expense was only ¥0.15bn. The non-operating FX gain equaled 31.1% of operating income, making reported net profitability more volatile than the operating result alone would suggest. Extraordinary items were modest in aggregate: ¥0.42bn of extraordinary income was offset by ¥2.01bn of extraordinary loss, including ¥0.87bn of impairment, limiting their impact on net income.
Growth Assessment
Q1 revenue contraction was concentrated in the tire business, where sales declined ¥4.44bn year on year. Automotive-parts revenue declined by ¥0.12bn, but improved segment profitability suggests better cost control or mix within that smaller business. Consolidated gross profit increased despite lower revenue, demonstrating that earnings resilience at the gross-profit level was better than the headline sales trend. The near-term growth question is therefore whether gross-margin gains can be retained while restoring volume and reducing the SG&A-to-sales ratio. Full-year company guidance calls for revenue of ¥620.00bn, up 4.2% year on year, operating income of ¥94.00bn, down 3.4%, ordinary income of ¥82.00bn, down 19.1%, and net income of ¥54.00bn. Q1 progress is 21.1% of annual revenue guidance, 21.9% of operating-income guidance, 26.0% of ordinary-income guidance, and 28.7% of net-income guidance. Revenue and operating-income progress are modestly below the standard 25% Q1 run rate, by 3.9 percentage points and 3.1 percentage points respectively, whereas ordinary and net income are ahead because of favorable non-operating FX effects. The forecast therefore appears to require a stronger sales trajectory through the remaining quarters, but not an exceptional operating-income catch-up. Management has not revised the forecast, indicating that it views the Q1 revenue shortfall as manageable within its existing assumptions. The inventory build and elevated inventory days increase the importance of monitoring demand realization, production discipline, and any later requirement for discounting or inventory valuation adjustments.
Financial Health
Financial health is strong. Current assets of ¥387.11bn exceed current liabilities of ¥119.60bn by ¥267.51bn, resulting in a 323.7% current ratio and a 236.0% quick ratio. There is no current-liquidity warning, as the current ratio is substantially above 1.0x. Cash and deposits of ¥104.94bn cover short-term loans of ¥11.09bn by 9.47x. Short-term loans represent 26.3% of the stated ¥42.10bn interest-bearing debt, limiting near-term loan-refinancing pressure. Debt-to-equity is a conservative 0.38x, debt/capital is 7.3%, and liabilities represent only 27.5% of total assets. Interest coverage of 140.2x indicates very ample debt-service capacity. In addition to loans, the balance sheet includes ¥20.00bn of bonds payable, which remains relevant to ongoing refinancing and interest-rate exposure. Equity increased ¥101.11bn year on year to ¥532.77bn, while the capital adequacy ratio improved to 72.5% from 69.4%. Cash declined ¥123.13bn year on year, but this was more than offset in liquidity analysis by the sizable reduction in current liabilities and the still-high cash balance. Intangible assets are limited to 3.2% of total assets, reducing balance-sheet dependence on intangible-value retention. Net defined-benefit liability was ¥3.12bn and is immaterial relative to total equity.
Notable B/S Changes
Cash and deposits: -¥12.31bn (-10.5%) year on year to ¥104.94bn - liquidity remains strong, but the cash reduction increases the importance of working-capital conversion. Trade receivables: -¥16.90bn (-12.4%) year on year to ¥119.60bn - the absolute balance improved, although the supplied 83-day annualized DSO remains elevated against the efficiency benchmark. Inventories: +¥12.85bn (+14.0%) year on year to ¥104.89bn - inventory rose despite lower Q1 revenue, consistent with the high-inventory-day alerts and requiring close demand and production monitoring. Current liabilities: -¥26.36bn (-18.1%) year on year to ¥119.60bn - this materially strengthened near-term liquidity and contributed to the 323.7% current ratio. Other accounts payable: -¥16.71bn (-45.5%) year on year to ¥19.97bn - reduced supplier and other operating funding increased the net working-capital funding requirement. Total liabilities: -¥28.33bn (-12.3%) year on year to ¥202.26bn - deleveraging supported the improvement in capital adequacy to 72.5%. Total equity: +¥10.11bn (+1.9%) year on year to ¥532.77bn - higher retained earnings and positive comprehensive income strengthened the equity cushion.
Cash Flow Quality
Dividend Sustainability
The full-year dividend forecast is ¥135 per share, unchanged from the company forecast. Against forecast EPS of ¥350.66, the implied dividend payout ratio is 38.5%. This is below the 60% sustainability benchmark and leaves a meaningful earnings retention buffer. Q1 EPS was ¥100.50, equivalent to 28.7% of forecast full-year EPS, so first-quarter earnings provide a constructive start toward the planned dividend. The balance sheet provides additional support, with ¥104.94bn of cash and deposits, low leverage, and strong interest coverage. Dividend sustainability nevertheless remains linked to execution of the full-year operating plan and the conversion of elevated receivables and inventories into cash.
Risk Assessment
Business risks include Tire-business concentration: the tire segment contributes 91.1% of consolidated revenue and 97.2% of segment operating income, leaving group earnings highly sensitive to tire volumes, pricing, replacement demand, OEM production, raw-material input costs, and factory utilization., Demand and inventory risk: inventory increased 14.0% year on year to ¥104.89bn while consolidated revenue declined 3.4%, raising the risk of production-demand imbalance, discounting, or inventory valuation pressure if end-market demand does not recover., FX risk: a ¥6.40bn FX gain supported Q1 ordinary income, versus a ¥43.39bn FX loss in the prior-year quarter. Such swings can materially affect reported earnings independently of underlying operating performance., Automotive-industry risk: automotive-parts sales declined 1.1% year on year. Customer production schedules, vehicle demand, model transitions, electrification-related component changes, and quality requirements can affect segment volumes and margins., Manufacturing cost risk: tire profitability is exposed to volatility in rubber, petrochemical-derived inputs, energy, freight, and labor costs; maintaining the Q1 gross-margin improvement is important to offset the current SG&A deleveraging..
Financial risks include Receivable collection risk: the HIGH_RECEIVABLE_DAYS alert of 83 annualized days exceeds the 60-day warning threshold. This indicates slower cash collection and greater customer-credit exposure than the stated benchmark., Inventory efficiency risk: the HIGH_INVENTORY_DAYS alerts identify 167 days and 127 days under alternative annualized calculation bases, both above the applicable 90-day and 60-day warning thresholds. The former emphasizes inventory relative to sales, while the latter reflects inventory relative to cost of sales; both indicate capital-intensive inventory holdings., Cash-conversion-cycle risk: the LONG_CCC alert of 214 annualized days materially exceeds the 120-day warning threshold. The combination of elevated receivables and inventory extends the period before operating cash is recovered., Refinancing and rate exposure: loans total ¥42.10bn and bonds payable are ¥20.00bn. Current liquidity and interest coverage are strong, but debt costs and refinancing conditions remain relevant as market interest rates change..
Key concerns include The root cause of the working-capital alerts is the combination of ¥119.60bn of trade receivables and ¥104.89bn of inventories against Q1 revenue of ¥130.95bn. For a manufacturer, some inventory and customer credit are structurally required, but the reported day metrics are well above the supplied efficiency benchmarks. The impact is a greater risk that accounting earnings do not translate promptly into cash and that future demand weakness could require inventory reduction measures., Operating-income weakness is more fundamental than the net-income growth headline: operating income fell 8.1% and operating margin declined 80bp because SG&A increased faster than revenue. The impact is that the quality of the earnings beat depends partly on volatile non-operating FX gains rather than solely on recurring operating expansion., The ¥0.87bn impairment in automotive parts, compared with ¥0.34bn a year earlier, is small relative to group net income but warrants monitoring as an indicator of asset-return discipline in the lower-margin segment..
Investment Implications
Key takeaways include Gross-margin expansion to 42.6% is a positive underlying operating feature, but higher SG&A caused operating-margin compression to 15.7%., Net-income growth of 14.6% exceeded operating performance because Q1 included a ¥6.40bn FX gain; recurring earnings assessment should center on operating income and segment margins., The tire business is the decisive earnings driver, with a 16.8% operating margin versus 4.9% in automotive parts., Liquidity, capitalization, and interest-service capacity are strong, providing resilience against cyclical volatility., Working-capital efficiency is the key financial-monitoring issue, particularly inventory days, receivable days, and the 214-day annualized cash conversion cycle., The forecast payout ratio of 38.5% appears compatible with forecast earnings and the existing balance-sheet capacity..
Metrics to watch include Tire-segment revenue growth and operating margin, Consolidated SG&A growth relative to revenue growth, Gross margin retention versus raw-material, energy, freight, and pricing changes, Receivable days of 83 and collection trends, Inventory days of 167 and 127 under the reported alternative bases, inventory balance, and any valuation losses, Cash conversion cycle of 214 days, Foreign-exchange gains or losses relative to operating income, Progress toward full-year revenue guidance of ¥620.00bn and operating-income guidance of ¥94.00bn.
Regarding relative positioning, TOYO TIRE exhibits above-benchmark operating and net margins, good annualized ROE, and a markedly stronger capital structure than a highly leveraged cyclical manufacturer. Its relative weakness is operating working-capital efficiency: the supplied receivable, inventory, and cash-conversion-cycle measures are materially above manufacturing benchmarks. Reported Q1 net profitability also carries more FX sensitivity than the operating-income trend suggests.